A reader asks: Do you see the new fee on refinancing mortgages being permanent?
What is a late payment?
A late payment is an amount of money a borrower sends to a lender or service provider that arrives after the date that the payment was due or after a grace period for the payment has passed.
How much a payment is late and other factors can have a negative impact on a person’s credit score and, indeed, their ability to obtain credit at a favorable rate.
Regardless of the reason, there are several consequences to making late payments, including:
- Late payment fees.
- Interest added to the delinquent payment.
- Possible termination of service or default of a loan.
- The late payment showing up on a credit report.
Payments that are less than 30 days late often do not show up on someone’s credit report, unless they occur frequently. When they do show up, they can remain on that person’s credit report for up to seven years, after which they fall off automatically.
Occasionally, people can avoid the negative consequences of a late payment by sending a letter explaining the why the payment is late to the creditor or service provider. The key is to remain in contact. Once a delinquent account is turned over to a collection agency, the account holder can never get that account current again.
Even late payments that aren’t that severe can affect a person’s credit score. Fair Isaac Corp., the credit scoring company, says the general criteria for any impact they would have is how recent the late payments are, how severe they are and how frequently they occur.
In addition, late payments are categorized on a person’s credit report by the number of days late — 30 days, 60 days, 90 days, 120 days and 150 days, or as charged off because of their severe delinquency.
Late payment example
George and Jean were busy planning for the wedding of their daughter, Mary Jean, and didn’t remember to make their car payment. By the time they realized it, they were 40 days delinquent on their auto loan.
To stem the fallout from being overdue, George immediately called the bank and volunteered to make a late payment with a credit card to keep the loan from becoming any more delinquent.